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A new report by Morningstar Sustainalytics reveals that while less than 10% of companies globally are consistently implementing best practices for the low carbon transition, there are leading examples to learn from.
The report, based on Morningstar Sustainalytics’ Low Carbon Transition Ratings (LCTR), identified six key actions most commonly adopted by companies at the forefront of emissions reduction efforts.
Pustav Joshi, Associate Director of Climate Research at Morningstar Sustainalytics, highlights the importance of these practices:
“Companies consistently employing these best practices make up a small minority,” says Joshi. “However, these practices are actually quite simple and can be adopted by any company, especially those in high-emitting industries, to manage their climate risk exposure.“
The six key best practices identified in the report are:
- Setting GHG Targets: Only 20% of companies assessed by Morningstar Sustainalytics have set concrete greenhouse gas reduction targets. Leading industries in this area include containers and packaging (46%), paper and forestry (41%), and household products (39%).
- Linking Executive Pay to GHG Targets: Just 8% of companies have a clear connection between performance on emissions reduction targets and executive compensation. Aligning financial incentives with sustainability goals is critical.
- Utilizing Carbon Pricing: Companies integrating carbon pricing into decision-making today will be better positioned for potential future regulations like carbon taxes or cap-and-trade schemes.
- Developing a Sustainable Financing Strategy: Only 10% of assessed companies have issued green bonds or loans to finance sustainable projects.
- Leveraging Technology: Forward-thinking companies are adopting innovative solutions like waste heat recovery and smart energy management systems. Green hydrogen and carbon capture technologies are also gaining traction in the oil and gas sector.
- Tracking Supply Chain Emissions: A mere 8% of companies engage their suppliers in setting and reporting on emissions reduction targets. Even fewer (2%) require their suppliers to hold their own suppliers accountable for emissions reductions. Addressing Scope 3 emissions is crucial, especially for companies with complex supply chains.
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The report underscores the need for wider adoption of these best practices as companies navigate the transition to a low-carbon future.